Dark pool lawsuit hits Barclays, Russell deal lifts LSE

Slumps in the shares of Barclays (BARC) and Standard Chartered (STAN) have offset a surge for housebuilders to leave the FTSE 100 trading flat.

After a week of losses, the UK blue-chip index has steadied, held back only by big drops by Barclays, which has been hit by a US lawsuit and Standard Chartered, after it warned of a 20% slump in profits. The FTSE 100 was down two points at 6,731 points.

Barclays fell 6.6%, to 214.8p after the New York attorney general announced he had filed a fraud lawsuit against the bank over the running of one of its ‘dark pool’ trading systems.

Dark pools were originally created to allow investors to perform big trades without tipping off the market. The lawsuit alleged that Barclays assured customers it would ensure the best possible prices for share trades but instead maximised its profits and executed nearly all of the trades in its dark pool even where other exchanges may have offered better prices.

‘The complaint is seeking unspecified monetary damages, making it difficult for us to quantify the potential financial impact on the group at this stage,’ said Gary Greenwood, analyst at Shore Capital. ‘However, this is clearly not good news.’

Standard Chartered meanwhile shed 4.5%, to £12.01, after warning profits for the first half of the year would fall by around 20% compared to the same period a year ago. Full year 2014 profits were likely to be down on its 2013 numbers, as tougher regulation took its toll, it added.

In a separate announcement, the bank announced head of financial markets Lenny Feder would be taking a sabbatical, and that it had started a search for a permanent replacement.

London Stock Exchange Group (LSE) was the stellar FTSE 100 performer, rising 6.2% to £19.85 after announcing a $2.7 billion (£1.6 billion) deal to buy US fund management and stock exchange group Russell Investments.

The LSE will fund the deal with a $1.6 billion rights issue. It would create a huge index provider, accounting for around $9.2 trillion of assets.

RBC Capital Markets analyst Peter Lenardos said the deal would help the LSE better compete with index provider MSCI and diversify its business from its current UK focus.

‘We believe that the Russell transaction should bring higher quality, more recurring revenue, and thus we would expect that the LSE would be assigned a higher multiple by the market,’ he added.

Housebuilders also rallied after Bank of England governor Mark Carney announced more lenient plans than expected to deal with accelerating house prices.

Carney unveiled plans to cap riskier mortgage lending, preventing lenders from offering more than 15% of residential mortgages at more than 4.5 times a borrower's income. The Bank's financial policy committee is also proposing tougher affordability checks on mortgage applicants, while the Treasury has said the Help to Buy scheme will not be available for those looking to borrow more than 4.5 times their income.

Outside the FTSE 100, ‘mid cap’ stock Kenmare Resources (JEV) surged, adding 3.6p, or 29.6%, to 15.6p after Australian mining rival Iluka Resources (ILU.AX) confirmed it had made a takeover bid for the Dublin-based company. Kenmare said it had rejected the bid as it did not place enough value on its largest mine.

AIM-listed Hurricane Energy (HUR) meanwhile jumped 30.6% to 38.7p after announcing it had successfully produced oil from its Lancaster well west of Shetland.

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